Italy: difficult trade dynamics for private label products

The specialized press and the various virtual conferences that have been held in recent weeks (see references to our reports at the end of the article) have provided ample comment on the fairly positive results of the last tomato season and on the favorable situation created both by the absorption of surplus stocks and by the spectacular rise in the level of consumption in recent months.
However, all the operators of the sector have not been so upbeat and the improvements observed in the value levels and trade flows of certain product categories should not make us forget that the Covid-19 pandemic and the difficulties of the 2020 season, especially in southern Italy, have also had disastrous consequences for companies whose operations are based entirely or partly on outlets linked to the hotel-restaurant industry, and for those who deal with large chain retail distributors.

This was the case for a number of companies in the Salerno region which, having recently mentioned “difficult trade dynamics”, reported that “the industrial processing season for tomatoes in central Italy has been facing a number of obstacles from the start, which have continued to pose problems also in terms of marketing.”
For Enzo Perano, Managing Director of the Campanian company Perano Enrico & Figli, “the rise in costs and, in some cases, the shortage of raw materials – in a market segment where volumes play a particularly important role in increasing profit margins – could cause trouble for companies that produce the products, in particular under private labels. This is why the trade dynamics of tomato products being sold to large chain retailers looks to be difficult.”

 “During difficult seasons, as has been the case with the current one, it is the evolution of turnover and the mix of margins obtained on sales (both for private labels and on behalf of third-party companies) that makes the difference on the total balance sheet. This is a common situation in Campania, since out of one hundred factories operating in Italy, half are concentrated mainly in the provinces of Naples and Salerno, where the main national and European groups of the agro-industrial sector have set up.”
“The question is to know if the large retail chains will be ready to endorse on their shelves the increase in the price of tomatoes at the agricultural level, insofar as the contracts are concluded well before each harvest season with the distribution platforms.”

Furthermore, 80% of the canning companies ended the tomato season prematurely. “We processed at least 30% less volume than expected, continues the processor, due to adverse weather conditions. Bad weather has indeed limited production, and increased agricultural costs, in a proportion that farms are unlikely to be able to absorb. All this recalls the problems already encountered during the 2018 season; in fact, we are leaving behind a season that has not been easy even for growers, although they managed to sell their harvest at much higher prices than in 2019.”

Located between Naples (30 km) and Salerno (17 km), the company Perano Enrico & Figli processes and markets a wide variety of tomato products, from round and oblong fruit, with total annual volumes of around 80,000 tonnes. The company is present in Italian and foreign supermarkets under its own brand name (Galletto) and under private labels.
On an international scale, the situation generated by the second wave of the pandemic, unlike the initial rush and the “panic buying” observed in supermarkets, has been manifested by a slowdown in consumption, particularly in the Horeca sector and more particularly in the field of catering (now completely shut down). The drop in sales is also affecting foreign outlets, which are usually essential reference markets for “made in Italy” products.

“It could have been an extraordinary year, concluded the manufacturer, in terms of demand and sales growth; but, being unable to bring to market the adequate quantities, we unfortunately cannot count on the margins which would normally result. We will be happy to be able to simply limit our losses in this particular context, otherwise we would not have concluded supply contracts with large chain retail distributors under conditions that leave us [gross] margins comparable to those obtained during seasons where the cost of agricultural production had remained stable. In the end, the real problem has been the lack of quantity: for the processing industry, a drop in activity translates into a reduction in margins, and that is the real problem.”

Source: freshplaza.it